BT charges may vary from others

It is common practice for users of revenue sharing telephone numbers to quote a charge levied by BT, accompanied by the statement “other providers may vary”.

This is misleading, especially when referring to the BT charges for calls to revenue sharing 0845 and 0844 numbers, because only they are regulated. It is BT’s charges that vary from the pattern applied by other landline service providers (notably Virgin Media) as well as all of the mobile providers.

When seen in relation to its charges for calls to “normal” 01/02/03 numbers, which are not regulated, the BT charges for these calls have been atypical for many years. This perverse difference will pass a significant landmark when the latest set of BT price increases come into effect on 1 October 2009.

What does BT charge for these types of calls?

Different tariffs apply to “business” and “residential” subscribers. I refer here only to the latter, and consider only the general situation.

Those who quote BT prices have three different bases from which to take their figures.

• The “Standard” tariff – the name sounds appealing, but this is only a model which applies to almost none of BT’s actual customers, the vast majority of whom subscribe to “Call Plans”.

• Calls within a Call Plan – Call Plans are in effect at certain times, according to the plan selected: Anytime, Evenings and Weekends or Weekends only. No additional charge is made for calls that fall within the terms of the Plan.

• Calls outside a Call Plan – For Call Plan customers, specific (not “Standard”) charges are made for calls that fall outside the terms of the Call Plan.

It is clear BT policy to encourage customers to subscribe to the most inclusive Call Plans. It has been steadily and significantly increasing the call setup fee and rate per minute (where possible) for all calls that fall outside Call Plans.

Figures from any one of these three may be described as being “the BT charge”.

How is BT different in respect of revenue sharing numbers?

For historic reasons, BT is exclusively subject to a regulation known as “the NTS Condition”. This covers calls to 0845 and 0844 numbers. (0870 was removed from this as part of the changes that came into effect on 1 August 2009.)

The pence per minute element of the retail price (excluding VAT) that BT may charge for these calls is fixed. BT is required to pay over the vast majority of this revenue to the telephone company that terminates the call (the termination fee). Other operators have to make similar payments, but are free to set their rates to obtain whatever margin they wish.

BT is now similarly free to take whatever margin it wishes on calls to “normal” 01/02 numbers. Calls to 03 numbers can be charged at no greater rate – this is a regulatory requirement on all operators. The call setup fee that BT charges for all calls outside the terms of a Call Plan is not regulated.

How does this difference show itself? – (1) 0845 numbers

For many years the regulated BT charge for calls to 0845 numbers has been less than the unregulated charge it chooses to set for calls to 01/02/03 numbers. This is despite the fact that 0845 calls cost BT much more in termination fees.

From January 2009 BT included calls to 0845 numbers within its Call Plans. The prices of all the Call Plans was increased shortly afterwards (presumably to accommodate this change). The cost of revenue sharing is therefore now being carried by all subscribers to BT Call Plans. Ofcom has yet to address the impact that this has on the application of the NTS Condition, as the prices for Call Plans are not regulated.

Because the BT margin on calls to 0845 numbers is regulated to be very small, it had relatively little to lose by making this move. Suggesting that competitors should follow this lead is plain cheeky.

There are a few competitors who invariably mirror BT pricing structures. They not only charge the perverse lower rates for calls to 0845 numbers but have also added them to their equivalent of the BT Call Plans. One has to assume that they manage to achieve this by also mirroring the extensive cross-subsidy that BT relies on to produce an overall profit.

How does this difference show itself? – (2) 0844 numbers

From 1 October 2009 the cost of a weekday daytime call to a “normal” (01/02/03) number will increase to 5.2p per minute (including VAT at 15%) for calls by Call Plan subscribers that are outside the terms of the particular Call Plan (e.g. weekday calls for those on the weekend-only Call Plan).

The rate for the most expensive type of 0844 number, as used by many GPs, will remain fixed at 5p per minute including VAT at 17.5% - currently 4.894p per minute, including VAT at the temporarily reduced rate of 15%. This applies to all BT customers at all times – calls to 0844 numbers are never inclusive under a Call Plan, or indeed any other package from any provider.

This will be the first time that calls to all revenue sharing numbers have been seen to be cheaper than the charge imposed for calls to “normal” numbers.

One awaits this being seized upon by those who benefit from the revenue share on 0844 numbers, as evidence that calls to them are cheaper than “normal” calls. Such an observation would disregard the following significant factors:

• BT would stand alone in this situation (with those few who may shadow it)
  
• It does not apply with reference to Call Plan inclusive calls (which do not include 0844)
  
• Having increased by 33% in 12 months, the rates for calling “normal” numbers are clearly intended to be penal for those who call outside the terms of their Call Plan. The equivalent associated call setup fee has increased by 56% (both percentages are based on VAT exclusive rates). Such a price increase cannot be justified on any other basis.

A level of charge that so clearly represents some sort of penalty cannot reasonably be used as the base point for a normal comparison. I cannot however see this consideration preventing such a comparison being made by someone keen to make a point.

What do other providers do?

Whilst cross-subsidy is not unique to BT, most charges for calling 0844 and 0845 numbers reflect the pattern of the cost involved more closely.

The increased cost of the higher termination fees that support revenue sharing are (not unreasonably) generally reflected in higher call charges. Similarly, calls to 0844 and 0845 numbers are not covered by call inclusive packages. This is because the greater cost would inflate the cost of the packages disproportionately. (Virgin Media offers premium packages of pre-paid call minutes which cover 0844 and 0845 calls, but along with calls to mobile and premium rate service numbers!)

Cross-subsidy is seen to work in the opposite direction with the mobile providers. Charges for calls to “normal” numbers are a focus of competition and are therefore kept low. Charges for calls to revenue sharing numbers are inflated to provide a much greater margin than would be obtained pro rata by adding the cost of the inflated termination fee to the charge for a call to a “normal” geographic number. The greater use of a variety of limited and unlimited call packages in mobile tariffs, from which 0845 and 0844 calls are invariably excluded, typically makes the differential even greater.

Summary

In a simple world the higher costs incurred by call originating telephone service providers in providing a revenue share to recipients through their telephone company would be invariably and visibly reflected in a higher charge seen by callers.

The above should have provided an explanation of why BT charges for calling all 0845 and 0844 “revenue sharing” numbers are atypical. Sadly, this is not simple.

Part of this is due to regulation, which effectively causes BT to have to inflate the margin it takes on other calls. These prices for other calls, when chargeable, are also inflated to encourage subscription to more extensive Call Plans.

Because other providers are not constrained in this way they (more naturally) reflect the higher costs they incur in originating calls to revenue sharing numbers in higher charges.

Conclusions

The “NTS Condition” which was intended to provide price predictability (at higher than normal rates, for added value services) when BT was the predominant provider of telephone services is now seen to have totally perverse effects. It needs to be reviewed.

Despite BT still being the largest provider of telephone services by some way, the structure of its charging is seen to be totally atypical. It is therefore wholly unsuitable for its call charges to be seen as exemplary.


Tariff examples

Apart from the one example necessary to demonstrate the landmark that will be passed on 1 October, I have avoided reference to specific rates in these comments. I present them as holding the essential points that can be deployed with reference to any specific example.

If used to present an argument by themselves, these comments would be helped by meaningful illustrations using examples of frequently used tariffs. Confident in the essential truth of the statements made, I do not possess the evidence necessary to show which of the hundreds of detailed tariffs published by the various providers (or indeed the many tariffs that lack essential detail) would represent meaningful examples. I do not wish to undermine the points made here by opening myself up to challenge on the validity of examples that I may select in support of them.

 Furthermore, comparison with the cost of “normal” calls is not easily expressed numerically when considering inclusive packages, which have a significant part to play in current telephone charges.

 I would be happy to assist anyone who does hold the necessary information to enable something more comprehensive to be prepared.